Kenexa's Growing HR Footprint

Summary:Kenexa's grown a lot via acquisitions over the years. But, unlike many software acquirers that buy and hold, Kenexa appears to be incorporating these products into its solution sets and enhancing them along the way.

Earlier this month, Kenexa hosted an analyst briefing day in Dallas. The event drew many of the best HR analysts and that meant some of the Q&A was lively (and informative). Even with some tough analysts in the crowd, the firm and its executives (and their customers) were convincing.

1) Kenexa's growth, especially in a down economy, has been solid. They reported posting good numbers and their highest growth rates were in large accounts (their sweet spot). They claim an 88% close rate in late stage deal statistics. That number is not an industry standard and has no comparables. However, the anecdotes they shared (and the customer panel later in the day validated this) indicated that they should do well in most dances that they get invited to. Given what I know of their product line, people and large account history, I believe this to be true.

2) Kenexa's acquisitions, which have been numerous over the years, seem to be paying off. Kenexa has proved that stitching together cloud applications, and more importantly cloud information services, can be done in a fast, cost-effective manner. I suspect that Oracle (who recently acquired CRM vendor RightNow) may have also figured out this strategy.

3) Kenexa's RPO (recruiting process outsourcing) business is recovering in sync with the overall economy.

4) Kenexa has not even begun to fully penetrate its customer base - The company's acquisitions have, for the most part, been complementary to the core product line. The firm's acquisitions are often best of breed applications that can be cross-sold to most of Kenexa's existing customers. As their product line grows, Kenexa's footprint and single product line offering story get better and better. Niche HR vendors will certainly feel more competitive pressure from the bigger Kenexa. Kenexa's other advantage is that many HR technology buyers like to buy in discrete tranches. They'll buy, for example, some performance management tools one year, salary data the next, employment verification capabilities the following year, etc. This gives Kenexa a lot of reasons to keep coming back with an ever expanding product mix for years and years.

5) Kenexa's product line is quite large now. The company's talent acquisition product roadmap is pretty complete now. They will likely need to expand beyond this into more HR operation and post-employment software and services soon. Their product lines now include solutions around BrassRing, 2X and SkillSoft plus services like Salary.com. Talent acquisition capabilities go from software to RPO and to information content.

6) Kenexa has really polished the "science of recruiting" message. It's clear they understand what their differentiation is: they don't just sell tools, they help firms understand what sort of individual is the best, most successful person in their firm and how recruiting can be tuned to find more people with those attributes. This is actually quite important as many of their competitors just sell the technology behind recruiting. The competition assumes its customers will know what to do with their technology once they get it (Competitors are often guilty of selling chainsaws to four-year olds. If they ever got them running, they'd have a bloody mess on their hands). Kenexa assumes that better informed customers will do a superior job of using the new technology to deliver superior business results. The difference in value is significant as better hires have higher retention, deliver better results, etc.

Kenexa treated us to a video tele-panel of customers. These executives were from three of the largest firms in the world. The key points I got from their comments were:

o They didn't see any holes in Kenexa product line

o They want Kenexa to continue its international expansion

o They want Kenexa to bolster their services group

During some of the product demonstrations, we heard of Kenexa's social media capabilities. The product has a lot of the social media components (e.g., ability to broadcast new positions via social referrals of employees) that are becoming more prevalent in many HR solutions today. I would like to see them push the envelope further here and bring social mapping (i.e., to better understand the degree of interconnectedness each employee possesses and to better understand which employees contribute the most to the firm) to the solution set.

What should we expect next from Kenexa? At next year's analyst event, I'd hope to hear that:

- Kenexa has made additional acquisitions or developed new applications beyond the recruitment space

- Kenexa will have created more purpose driven workflows and content for their mobile solutions

- Kenexa is developing more product for the mid-market.

Bottom Line: Kenexa's been a solid player for large enterprises looking for an HR Recruiting solution. The size of the offerings has grown over the years and is a more competitive suite than ever.

The company's strategy hinges on delivering software (via the cloud mostly), coupling this with insights (from their services work) and enhancing this via information content. It's a good strategy that should serve them (and their customers) well.

Offline, I could see that they've made a lot of progress in thinning out the numbers of different architectures, products, etc. in their product mix. Kenexa is not a portfolio software company but appears to be building a firm with a broad product set in only a couple of platform choices. I hope they continue to streamline the architectures.

Finally, the firm really understands large firms. But, scaling globally will stretch two core pieces of their business (i.e., services don't scale that well in overseas markets and information content may require material enhancements to account for differing cultures, laws, etc. in those markets).

Kenexa should certainly be a long-list vendor for large-ish organizations looking for a recruiting solution. North American firms will find it particularly attractive while non-US/Canadian firms will need to do some due diligence to see how well the solution tracks for their specific needs.

Brian is in a unique position to diagnosis the winners and the losers in technology and services. He was the longest running (10 years) and most senior director of Andersen Consulting's (now Accenture's) global Software Intelligence unit - a position that required him to pick the best possible software solutions for hundreds of clients gl...
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